Streetwise Professor

Weather in Ghana has been good to the cocoa crop this year, which is putting downward pressure on prices:

After four years of shortages that sent the price of cocoa to its highest level in three decades, traders almost unanimously believe that the cocoa market is set to move into a surplus in the 2010-11 marketing year, which starts on Friday.

The looming oversupply has sent cocoa prices down by a third in the past two-and-a-half months.

The surge in production in west Africa, which accounts for nearly 70 per cent of the world’s supplies of the commodity used in chocolate, is a setback for investors such as hedge funds Armajaro and Clive Capital, which bet on rising prices earlier this year.

The cost of cocoa in London – the benchmark – has fallen to about £1,900 a tonne, down from a 33-year high of £2,732 a tonne set in July.

So Tony Ward must be hurting, right?  After all, he told the world–the world–that due to his super-sophisticated weather forecasting system, a proprietary network of weather stations, and the best weather data in the world, he knew a crop shortage was coming. So he must have been way long, and the price fall must have crushed him.

Well no, actually:

Investors say that Anthony Ward, the founder of Armajaro’s flagship CC+ fund, has suffered less than expected, however, as bearish hedges cushioned the fund from the price drop.

Oh, really?  Hedges, huh?

This means that the story he was flogging in July and August was complete bilge.  He wasn’t bullish on the new crop. It would be more accurate to say that he was bullsh*t on the new crop.

Which also means that his cover story for taking delivery in July was also complete bilge/bullsh*t.

Not that I am the least bit surprised.  The story made no sense anyways: it’s nuts to take delivery of the old crop at a big backwardation just because you think the new crop price is going to shoot up.  If you think that, buy the new crop, not the old crop. Duh.

Here’s a far more credible explanation of what happened.  Armajaro cornered the cocoa market.  Being clever, Ward knew the most difficult part of cornering is burying the corpse, so he did that by obtaining a burial plot in advance: the “bearish hedges” mentioned in the article.  All of the new crop shortage stories were just so much eyewash to fool the gullible.

Of whom, as this article and others indicate, FT reporters–most notably Javier Blas–are the foremost.  If they won’t get a room, could they at least get a clue?